Brazil: Thin cap rules clarified

Nearly 11 months after enactment, Brazil’s thin capitalisation rules have been clarified in Normative Ruling No. 1,154/2011 (NR 1,154), published in the Official Gazette on May 13, 2011. The original thin capitalisation rules were introduced by Provisional Measure 472/09 and converted into Law 12,249/10 in June 2010. The new NR provides guidance on the scope and computation of deductible interest expense based on the debt-to-equity ratios in Law 12,249/10, and is effective as from May 13.

The rules take into account the relationship between the lender and borrower, as well as the residence of the lender. The applicable debt-to-equity ratio depends on whether the interest is paid to a party (whether or not related) located in a tax haven or a jurisdiction with a privileged tax regime…

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